KAMLOOPS, B.C.-- The Anglican diocese of Cariboo is preparing to fold for good Monday night after a costly legal fight over compensating victims of abuse at residential schools.

It's believed to be the first church in the country to collapse under the weight of the lawsuits. Some people predict more will close their doors unless Ottawa steps in to help pay the settlements.

More than 100,000 native students attended residential schools across Canada in the 1960s and 1970s. The centres were funded by the federal government but run by Catholic, Anglican and United churches.

During the past few decades, thousands of men and women have filed lawsuits outlining the physical and sexual abuse they said they were forced to endure as children in the schools.

The Anglican Church has said all victims have a right to compensation, but it wants the federal government to share the guilt as well as a substantial share of the damages.

But negotiations between Ottawa and the various churches have broken down, and it's not clear when talks on a funding formula will resume.

In the meantime, more lawsuits are being filed and the diocese of Cariboo felt it had no choice but to disband and put its property and other assets in trust. For now, parish land will not be sold and people will be able to continue worshipping in the same churches.

Bishop Jim Cruikshank

"We're a small diocese, and don't have the financial resources to continue," says Bishop Jim Cruickshank, 65, who has decided to retire. "So we think we're doing the right thing."

The diocese, made up of about 4,700 parishioners in British Columbia's interior, has legal bills totalling more than $350,000 from residential litigation. After more than a decade of battling in court, it has paid out settlements to a handful of victims. All liquid assets have now been spent, according to officials.

The national Anglican Church has warned that it might go bankrupt within a year unless the federal government steps in. It's facing payments of up to $100 million.

But Ottawa argues that the churches have more money than they claim, and is refusing to pay more than 70 per cent of the lawsuits.

"It's the height of foolishness for the government, for the sake of some money, to force us into bankruptcy," says Archbishop David Crawley of the Anglican Metropolitan of British Columbia and Yukon.